Small businesses dominate the American economy, in terms of the number of firms. In addition, small businesses are responsible for two-thirds of net new jobs created each year. Our economy increasingly depends on small businesses, but our current health care system does not serve them well.
Because of their size, small businesses currently pay approximately 18 percent more than large employers for the same coverage. According to National Federation of Independent Business member surveys, approximately one in four small businesses that offer health insurance to their employees was forced to make changes to their coverage last year in order to offset rising premiums.
That’s one reason why only 43 percent of firms with fewer than 50 employees offer health insurance, while 96 percent of firms with more than 50 employees do.
Forty-two percent of Americans have changed their health care coverage in the past five years, many of them as the result of switching jobs, which makes the pre-existing condition exclusion increasingly unworkable. Quality employees are finding themselves “job locked,” all because health insurance isn’t portable.
Health reform is looking to change those statistics through these key features:
Minimum loss ratio requirement
Currently, not only do small businesses pay higher premiums than larger firms due to selection risk, but the administrative costs built into their health plans can also be three to four times as much, according to the Small Business Administration. The federal health Insurance reforms include a provision that sets a minimum loss ratio for Individual and small group coverage of 80 percent. This will necessitate greater efficiency and lower distribution costs within the carrier community and serve to reduce the administrative burden born by small employers. This will also help reduce overall premiums.
An exchange will allow small businesses to easily access an array of plans in a competitive marketplace. The small employer can make all of the plans available to their employees, creating an opportunity for employees to select plans that provide a much better fit to their individual needs.
The exchanges will reduce the complexity of choosing the right coverage for employees while increasing competition between insurance providers. Via an online portal, health plans will be presented for side-by-side multi-carrier and plan comparison, allowing both employers and employees to see their coverage options as well as price. In order to demonstrate the benefits of a carriers’ plan, the next generation of state exchanges will most likely be more consumer-centric and offer additional advisor tools such as online guided plan selection, cost calculators, and customer service through tools such as online chats and co-browsing to answer potential enrollees’ questions.
One of the many ways the new law will help small businesses is through tax credits. These credits may help small business owners provide health insurance to their workers – by giving back up to 35 percent of the employee premiums they pay starting this year. Not only may small businesses receive state health care tax credits, but they will also still qualify for a federal tax credit.
No longer will workers be penalized for leaving a job or for having a pre-existing condition. Health reform will offer insurance that individuals can own and can take with them from job to job and in and out of the labor market. By reducing “job lock,” small businesses will be able to compete for quality workers without the lack of health benefits or pre-existing conditions taking them out of the running.
Overall, health reform will make small businesses more economically competitive by reducing the financial burden of providing health insurance, opening up the potential talent pool, and improving employees’ access to affordable coverage.
Bob Barry, senior vice president of product and market strategy for Connecture Inc., a provider of Web-based sales, service, and process automation solutions to the health insurance industry. Connecture has offices in Waukesha and Atlanta, Ga.